A well-crafted buy sell agreement can help make sure your business ends up in the right hands, if you or one of your partners retires, decides to leave the business, becomes disabled, or dies.

Structuring your buy sell

A buy sell agreement defines when and to whom you can sell your part of the business and specifies a fair price. How you structure your buy sell agreement will determine who will buy the outgoing owner’s shares of the business, how much the buyer will pay and how the buy sell agreement should be set up. There are four common buyout structures:

Traditional cross purchase plan

Entity redemption plan

The business buys the departing owner’s shares, then the remaining owners rearrange the shares so they are equal partners.

One-way buy sell plan

Used when a sole proprietor wants their child, spouse or a key employee to purchase the business if the owner leaves or dies.

Wait-and-see buy sell plan

The business gets the first option to purchase the departing owner’s shares. If the business doesn’t buy it, the remaining owners can buy the shares.

Life insurance can play an important part in all of these plans by providing guaranteed funds for the purchase as long as the required premiums are paid.